Long-dated Treasury yields ended at fresh 16- and 13-year highs on Monday after the U.S. government averted a shutdown over the weekend — removing one obstacle to the Federal Reserve’s decision-making ability at its next meeting.
What happened
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The yield on the 2-year Treasury
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advanced 6.4 basis points to 5.110% from 5.046% on Friday. Rising yields reflected falling prices on the underlying government debt. -
The yield on the 10-year Treasury
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jumped 11 basis points to 4.682% from 4.572% on Friday. The 10-year rate ended at its highest level since Oct. 12, 2007, based on 3 p.m. Eastern time figures from Dow Jones Market Data. -
The yield on the 30-year Treasury
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rose 8.5 basis points to 4.794% from 4.709% on Friday. The 30-year rate finished at its highest since April 6, 2010.
What drove markets
Traders had gone into the weekend expecting a U.S. government shutdown that could have knocked 0.1 to 0.2 percentage points off of quarterly economic growth per week, based on some analysts’ estimates, and hindered the Federal Reserve’s ability to raise interest rates again in November.
But on Saturday night, the Senate voted to advance a short-term stopgap funding measure, averting a government closure for now. The development pushed 10- and 30-year Treasury yields back toward multiyear highs amid a broad-based selloff of most U.S. government debt that stung existing holders.
Markets are pricing in a 25.7% probability that the Fed will hike interest rates by 25 basis points to a range of 5.5% to 5.75% on Nov. 1, and a 38.2% chance of that happening by December, according to the CME FedWatch Tool.
In U.S. economic updates released Monday, S&P’s final manufacturing PMI for September came in at 49.8 versus a 48.9 initial reading, ISM’s manufacturing index rose to 49% last month from 47.6% in the prior month, and construction spending was up 0.5% in August.
Japan’s 10-year government bond yield
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was little changed at 0.776% after the Bank of Japan announced plans to buy additional amounts of 5- to 10-year debt to suppress yields.
What analysts are saying
“What seemed impossible on Friday — a pivot by Speaker McCarthy to work with Democrats — became inevitable on Saturday morning when Congress passed the 45-day stopgap funding bill on a wide bipartisan margin (which also entailed the Senate waiving its usual procedural obstacles),” said Libby Cantrill, managing director and head of U.S. public policy at PIMCO.
“Congress still needs to figure out how to pass the various appropriations bills to fund the government to avoid a shutdown in 45 days (Nov. 17), as well as find some common ground on both Ukraine funding and border funding,” Cantrill wrote in an email. “In other words, this is a respite from a shutdown, not a complete reprieve from one.”